Session 15: Fixed Income: Structured Securities Reading 55: Mortgage-Backed Sector of the Bond Market
LOS j: Explain the investment characteristics of stripped mortgage-backed securities.
How is the price of a principal-only mortgage strip affected by declining mortgage rates in the market? The price of the principal-only strip:
When mortgage rates decline, prepayments are expected to increase. Therefore, the principal-only strip investor gets payments sooner increasing the value of the PO. |